Key insights
- HOTMA’s new HUD income and asset rules directly affect LIHTC properties with HUD rental assistance, making tenant file practices a compliance priority now.
- In layered projects, the governing income definition is unit-specific: HUD-assisted LIHTC units generally follow HOTMA-compliant HUD rules, while LIHTC-only units continue under Section 42/state agency guidance.
- Owners should plan for documentation and audit risk as verification hierarchy, asset thresholds, and income exclusions change — especially where multiple certification forms and narratives are needed within the same property.
Get experienced guidance on new HOTMA and LIHTC rules.
Why HOTMA matters for layered LIHTC Projects
The Housing Opportunity Through Modernization Act of 2016 (HOTMA) significantly changes how income and assets are calculated for HUD-assisted households, with full implementation now required by January 1, 2027. HOTMA has direct implications for Low-Income Housing Tax Credit (LIHTC) projects layered with HUD rental assistance, including:
- Section 8 Project-Based Rental Assistance (PBRA)
- Section 202/811
- Rental Assistance Demonstration (RAD) conversions
- Other HUD multifamily subsidy programs
In these structures, HUD income determination rules typically govern the assisted units, which affects how tenant files are certified for LIHTC compliance.
The core rule: Which income definition applies?
LIHTC-only units follow IRC Section 42 and state agency guidance, but when HUD rental assistance is present, HUD’s annual income definition generally governs LIHTC compliance. Under HOTMA, HUD revised the income and asset rules in 24 CFR Part 5, including:
- Streamlined income review requirements
- Revised verification hierarchy
- New asset thresholds and limitations
- Expanded income exclusions
For LIHTC units with HUD rental assistance, household income must be determined using HOTMA-compliant HUD rules, and that determination generally supports LIHTC eligibility for the assisted unit.
The rules for mixed housing projects
In projects with both HUD-assisted and non-assisted LIHTC units:
- HOTMA applies only to the HUD-assisted households
- Non-assisted LIHTC units continue to follow state agency LIHTC guidance, which may or may not have fully adopted HOTMA concepts
As a result, owners face added compliance and documentation challenges, including:
- Different income rules within the same project
- Different Tenant Income Certification (TIC) forms or worksheets
- Increased importance of clear, unit-level documentation
Recommendation: Each tenant file should explicitly note which program governs income determination and why.
Practical impact on LIHTC tenant file certification
1. One household, two programs
For a LIHTC unit with HUD rental assistance:
- HUD income determination controls for the assisted unit
- The same income figure is generally used to support LIHTC eligibility
- The tenant file must clearly document HOTMA rules were applied
HUD emphasized program alignment to reduce administrative burden and inconsistencies, particularly for owners administering multiple subsidy layers.
2. Verification hierarchy changes affect LIHTC files
HOTMA revises HUD’s verification hierarchy by elevating tenant-provided third-party source documents (such as pay stubs and benefit letters) above traditional written verification forms.
For LIHTC files tied to HUD-assisted units:
- Files may rely more heavily on source documents rather than employer verification forms
- The file must explain why higher-level verification was or wasn’t available
- This approach is acceptable for LIHTC when HUD assistance drives the certification standard
3. Income reviews, exclusions, and asset changes
HOTMA introduces significant changes directly affecting tenant file practices for HUD-assisted LIHTC units:
Streamlined income reviews
HOTMA generally limits interim income re-examinations to situations where adjusted income changes by 10% or more, reducing mid-year certification activity while providing greater income stability for residents.
Expanded income exclusions
Annual income includes all amounts received unless specifically excluded under 24 CFR § 5.609(b), such as foster-care payments, certain disability-related assistance, principal distributions from non-revocable trusts, and certain veterans’ aid payments.
Modified asset rules and thresholds
HOTMA raises asset thresholds and limits the circumstances under which income is imputed from assets, increasing the threshold from $5,000 to $50,000 (inflation-adjusted), which may allow more households to qualify while reducing documentation burden. In certain cases, households with net family assets above $100,000 (inflation-adjusted) may be ineligible, subject to HUD-defined exceptions.
Self-certified assets
HOTMA allows project owners and management to accept household self-certification of their assets when total net family assets fall below HUD’s $50,000 threshold (adjusted annually for inflation), streamlining compliance by removing the requirement for third-party verification.
If a household qualifies under HOTMA rules, that income determination is typically acceptable for LIHTC, even if the household might not have qualified under pre-HOTMA LIHTC practices. This reflects HUD’s stated goal of program alignment.
What housing project owners should watch closely
Common HOTMA-related compliance risks in layered LIHTC projects include:
- Inconsistent application of HOTMA across assisted units
- Insufficient explanation of verification choices
- Missing narrative linking HUD income determinations to LIHTC eligibility
- Assuming HOTMA applies to all LIHTC units, regardless of subsidy
While HUD acknowledged implementation timelines and system readiness vary, owners are expected to clearly document and support their methodology.
How CLA can help with HOTMA and LIHTC tenant file certification
HOTMA doesn’t change LIHTC law, but it changes how income is determined for LIHTC units with HUD rental assistance. For those units, HOTMA compliance requirements generally govern LIHTC eligibility.
Navigating HOTMA implementation in layered LIHTC projects requires coordination across compliance, operations, and audit. CLA works with owners and nonprofit sponsors to interpret evolving HUD and HFA guidance, assess tenant file risk, and align documentation practices across programs.